Unchartered Territory

Market Update: 25 September 2020

Thanks to a few catalysts and some themes coming to the forefront this week, AUD broke its upward trend. It’s fair to say Guy Debelle came out with something new … a next level of verbal intervention alongside higher probability of a cut. This was reinforced by a few banks and subsequently, AUD fell to lows of 0.7016 – or a 4% drop in a week.

Some still argue it’s a catchup from S&Ps recent falls –  but it’s fair to say that a Central Bank should always be given attention when they say something different. We would argue as well, USD Index has also been setting the pace as EUR and GBP have also been on the ropes… again Brexit related and now to add fuel, the 2nd wave for Europe.

RBNZ also had a chance to make a meaningful dent in NZD, but it was more a reiteration of we’re working towards negative rates… but won’t necessarily act on it. Sorta like my threatening my son I’m going to take away his iPad… and the more absurd I go out (1 week, 1 month etc), the less he believes me. So NZD rallied.

This too is a risk for RBA. Verbal intervention is taken seriously, but has to be backed up – so too with rate cuts.

Nonetheless, we’ve harped (OK, I have) on about lack of stability going into the elections and so it looks like we’ve arrived. It’s not to say, sit on the sidelines, it could actually provide lots of opportunity. At the end of the day, the TINA rule (There Is No Alternative) prevails. Especially if we’re heading into lower rates and more fiscal stimulus.

European PMI came out a bit softer in total, US PMIs ok, US Jobless Claims a bit worse… so sorta justifies this soft week.

Have a great weekend!

Sources: Bloomberg

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